U.S. Debit Card Usage Down in 2014

A new study from Mercator finds that the Durbin Amendment has helped reduce the use of debit cards.

Debit card usage among U.S. consumers has declined to the lowest level since the passage of the Durbin amendment, according to a study released this month by Mercator Advisory Group.

The Durbin amendment, part of the Dodd-Frank financial reform bill, caps the amount banks can charge retailers for swiping their debit cards. The cap limits the fee to an average of 24 cents per transaction instead of the previous industry average of 44 cents. The new limit took effect in the summer of 2011.

The Mercator study found that debit account fees that many banking institutions have found necessary to charge to compensate for revenue they lost due to Durbin’s limits have driven consumers away from debit cards.

According to Mercator, debit card penetration in the United States declined over the past two years from a high of 68% in 2011 to a new low of 59% in 2013, as more consumers began using prepaid cards and nontraditional payment forms.

The report, titled "Consumers and Debit 2013: A Shift to Alternative Payments," also found that young adults, who have traditionally been more likely than average to use debit cards, are now no more likely than average to use a debit card. Further, debit card penetration of households that earn less than $75,000 a year is also declining faster than average, while at the same time, use of general purpose reloadable prepaid cards is growing, particularly among young adults, although it that growth still minimal, Mercator found.

The report is based on results from Mercator Advisory Group’s CustomerMonitor Survey Series online panel of 3,003 U.S. adult consumers surveyed between May 28 and June 6.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

It is possible to live off of a credit card, but not rack up any debt. This way you can get the rewards (or points) without paying any interest. Just pay off your card in full every month. Think of your credit card as a charge card, not a credit card.

I really fully agree with all of your points. Debit cards are really not valuable for banks as a product. We'll probably see more push and competition over credit card customers in the near future. And as I commented above, I expect more banks to start offering prepaid cards, since they are cheaper to offer than checking accounts.

There is little incentive for Banks to promote debits cards when they have to take all the liability and get very little in return. Also, the big pushers of the Durbin ammendment were retailers...folks who have 50% to 400% markup that said banks made too much money on debit cards that was less that 1.5%. Lastly, with all the data breaches like the recent Target one why would you want to expose your checking account to that when credit cards are safer and offer rewards?

Credit cards simply offer a lot of flexibility in payment and offer rewards that you can't get with a debit card. Those are really good incentives to use a credit card, even if young people have had a hard time getting their hands on one.

A lot of the prepaid growth has been in underbanked populations that don't have debit cards anyway. But I've seen some reports that said that traditional bank customers who have a checking account are starting to use prepaid more as well. And the banks that do offer a prepaid card - like Chase Liquid - have found that prepaid accounts cost less for the bank to maintain than a checking account. So I expect that prepaid growth to accelerate in the future.

That's definitely an issue. There are a lot of tech vendors out there trying to figure out ways to find credit-worthy customers without looking at credit scores. A lot of that work involves big data and analyzing public information about customers. So many young people today don't have much credit history because they grew up at a time when credit was so tight.

Thanks to all the fancy marketing I think there's some "prestige" to putting down a credit card at a restaurant or retailer versus a debit card. I believe many young adults who have gotten their hands on credit cards post-2008 (a difficult period for getting credit card approval) are eager to swap out their debit card.